Posts Tagged ‘taxes’

What is the proper role of government with regard to the health care of its citizens? How should costs be allocated? These are questions that are still up in the air in the USA, but how these questions are addressed still applies everywhere. The Republicans appear to have painted themselves into a corner on this subject, while the Democrat-imposed Obamacare is collapsing from its own defects. This legislation was deeply flawed and fundamentally unjust insofar as it expanded coverage for some uninsured people, largely by expanding Medicaid, while otherwise imposing steep additional costs on other individuals in a haphazard fashion. But the Republicans are the governing party now and are stuck with having to come up with solutions they have not adequately provided. They should know by now that it is virtually impossible to get rid of a benefit once it has been established, and the plan passed by the House is going nowhere in the Senate and fails to provide the fundamental overhaul they promised.

There is a desperate need to rationalize the American health care system by going back to the drawing board and starting from scratch. Republicans first need to concede that everyone ought to have adequate health care, giving that to the Democrats, who might then be brought on board. But this does not necessarily mean that health care should be provided by the government. Nor should it be provided because it is a “right;” it is rather a benefit. Why then should the state in some fashion underwrite such a benefit?

The short answer is that a developed society can afford to, and we must increasingly come to grips with the consequences of technological change, which is far more salient than “globalization” in causing economic disruption. Given that inequality is an inevitable consequence of a truly free society, those who lack higher skills and who are left behind by the consequences of automation, AI, and other developments- something that can happen to anyone, need to provide a basic level of support. If growth and economic dislocation eventually benefit everyone, then those who have disproportionately suffered the consequences ought to be provided with some level of adjustment. This is a different population than the poor, who already get everything for free. It is a population we want to prevent from falling into the ranks of the poor. As society develops and grows richer overall, it is reasonable to provide basics for everyone through some mechanism that does not overly burden everyone else.

The way to do this is to resolve to get the government completely out of the health care business and let market forces do what they do best- rationalize the distribution of goods and services. The state would instead provide a graduated insurance stipend to those who cannot afford it, who would then be able to purchase whatever health care they want or need. For this to work the government would no longer provide any other services directly or indirectly; no more mandates, no more policies, just a cash benefit and there would no longer are any pre-existing conditions. Since everyone is obligated to pay taxes, insurance and medical costs would be deductible, and medical savings exempt from taxation, but anyone who fails to purchase coverage would be charged with the cost of providing a policy for them, which would at least cover catastrophic circumstances, which otherwise would be passed on to everyone else. This does sound like the Obamacare tax but you cannot have universal health care without universal participation and no one is here being compelled to do anything.

This is not socialism, which is unworkable. Socialism would be government control of all health care, and hence ownership of the system. This is the opposite of that. Government is completely removed from any operational role and only would only maintain the principle that everyone be covered, by providing direct cash transfers where needed. This would dismantle the administrative state, save billions, and allow a rational system of costs and services to develop, leading to a reduction in overall expenses. There are many details to be worked out and this is preferred only as a roadmap. There are only two fundamental principles that must be adhered to: that everyone be covered and that the government gets out of the health care business.

The federal, state, and local governments always adapt the most optimistic scenario of revenues going forward, and then proceed to go ahead and spend on that basis. When these projections don’t materialize they are caught unprepared, especially at the state and local level, since they cannot print money like the federal government. Prudence would suggest that rather than proceeding on the rosiest assumptions, more cautious figures ought to be used. Instead they assume that things will be as good or better than they are at the moment, never worse. This is not to suggest that more realistic projections are not made in some cases, but those tend to be ignored in practice.

But things do occasionally get worse and revenues do fall below expectations. Everyone else has to tighten their belts when things go south. Businesses have to cut back ,as do individuals, but not the government, or it goes into crisis mode. In the recession everyone else has had to do more with less, but government just keeps growing, especially at the federal level. Locally, when the economy tanks there is less flexibility. If suburban property values fall, as they have in the housing bust, the income from property taxes that local governments depend upon is going to be reduced since houses are worth less. With reduced revenue they must choose between cutting back or increasing taxes, opting for the latter to the extent they can get away with it.

If governments simply adapted more realistic assumptions they would be in far less trouble, as several states are now, and there would be more stability, But when times are flush and the tax revenues roll in they make sure they spend every penny of it, usually for “unmet needs,” instead of either reducing debt, maintaing a rainy day account, or returning money to the people it belongs to through tax reductions. They usually go for the maximum they can squeeze out, and this is a feature that has been characteristic of all governments throughout history, no matter what form they take.

There is a reason for this, which takes us to my Prime Axiom: All entities constantly seek to grow and expand. Whether it is the state, social institutions, business, educational or religious institutions, at the top of the agenda is continued growth and expansion. It is a collective organic compulsion that takes on a life of its own. Rare is the entity that seeks to reduce itself. There is an even more basic reason for this; people always want more. Whether it is power, money, glory or simply more stuff, everyone wants more. That being the case, people in institutions continuously want more out of the environment they operate in. They feel compelled to be bigger tomorrow than they are today. it is no surprise that government acts in the same way. The differences is that there are fewer checks and limitations on the state than there are in any other domain. They get to write their own rules.

Once we understand how compelling these characteristics are in human nature, it is easy to see why government, which is composed of human beings, inevitably grows without limitation. The state always seeks to govern with the maximum number of resources it can obtain. This leads to ever increasing incursions into the private sphere, which is diminished, as it retreats before the endless state appetite for power and revenue. But as the government takes on more and more, its effectiveness becomes less and less, until it can no longer honor its commitments and heads towards collapse.

How then do we reduce the insatiable appetite of the state? It can only happen if people become aware of the process that is engulfing all of us. There are some states where government has changed course, limiting itself and lowering taxes, and it is no surprise that they are growing while other states with high taxes and regulation are losing jobs and people to them. It is only when we realize what we are doing to ourselves, for we do have a government composed of the representatives of the people, that we can begin to reverse course. We do not always need more and more, and must learn to limit ourselves. Some things do not get better with growth and expansion, for where the state is concerned, it contains the seeds of its own demise.

The congress and the President are now at an impass over just how to get more taxes out of the “rich.” The President thinks this consists of anyone making over $250,000 a year, but even some in his own party find this hard to swallow. Senator Schumer thinks it should apply only to those making over a million, apparently thinking of his high-income, hypocritical liberal constituents, given what the cost of living is here in New York. The Republicans, on the other hand, are willing to raise revenue by changing the tax code to eliminate or limit various deductions for the wealthy, while lowering rates across the board.

This may seem like a trivial difference to some people, especially in the affluent media, given that either way the government is going to get more tax revenue from those who are relatively well off, the Republicans having conceded as much already. But the underlying philosophies of each position stand in clear opposition. It essentially boils down to who should control other people’s money. The President’s position is that the rich should pay “more” on the basis of “fairness” and equality. Given that this kind of logic seems to appeal to a current majority of the public, he seems prepared to demagogue this issue over the “fiscal cliff,” even if alternative policies might actually raise more revenue with lower rates, calculating that with media support, he can successfully blame the consequences on the Republicans. They, in turn, argue, rather cogently I think, that this will only reduce investment and economic growth, particularly by burdening small business owners and confiscating capital from more productive uses.

It then ultimately becomes a question of who should spend the money- the people it belongs to or the government. It is as much about power and the direction of things as it is about revenue. The Democrats want it for social purposes, while the Republicans reject that for economic reasons, as well as based upon opposition to expanded government programs and power. The President essentially wants to maintain the current tax code and simply raise income tax rates, while the Republicans want to maintain or reduce current rates and change the tax code. In this they have a strong argument; unfortunately they are not very good at articulating it.

The current tax code is full of deductions, exemptions, and benefits skewed towards particular interests (talk about fairness), that reduce the taxes they pay and raise everyone else’s. This results in crony capitalism, rewarding those favored by the government at the expense of others. The advocates of such policies mean well, to the extent that these favors are designed to get people to do things they otherwise would not do, or that make no economic sense on their own. This favorable treatment is designed to provide “incentives” to achieve various political goals, such as green energy through Solyndra-type outfits. Thus, the government then effectively controls how money is spend both indirectly, as well as directly, by taxing all those who are not favored more. It means more power over decision-making, based upon the assumption that somehow politicians and government bureaucrats know better how a business should invest, than its owners.

I’m not going to get into all the reasons these schemes frequently fail, or the distortion of investment decisions, but will address them on the liberals’ own terms: it’s just not fair. What would be fair is a system where the same rates apply to everyone without exception, even if they are progressive, and where no one could curry favors from the state. If all these exemptions and favors were eliminated, not only would there be less economic distortion, but then the rates for everyone could be lowered across the board. The Republicans have a strong argument here, provided they stick to it and don’t dole out favors themselves. Under the present system, to paraphrase Pericles, you may not be interested in government but government is interested in you. As long as exceptions and favors are done by the state, supposedly in the public interest, it forces organizations to be involved politically. This inevitably invites corruption.

As bad as all this is on individual taxes, it is even worse when it comes to corporate taxes. Today the US has the highest corporate income taxes in the world, nominally, but exclusion and deductions effectively lower them for some who are favored. Eliminating the goodies for crony capitalists would allow rates to be significantly lowered across the board, thus encouraging more investment in this country. Again, by simply being fair, everyone would benefit.

But there are other interests at play besides the private sector, such as state and local government, and nonprofit organizations. Reducing, or eliminating deductions for state and local taxes usually leads to howls of protest from representatives of high tax states like New York. These concerns are, however, misplaced. New York sends far more taxes to Washington than it gets back. Thus logically every time a representative from here votes for more federal programs and taxes they are effectively voting against the interests of New York taxpayers. That is a strong argument that the Republicans in this state are unfortunately too inept to make, and thus keep losing elections. Reducing deductions for “charitable” contributions also results in protests from nonprofit organizations, who fear they might lose revenue. Never mind that wealthy donors often “contribute” via dinners and social events, they also get “naming” rights. In my view when a billionaire gets to plaster his name all over the place on something, usually in proportion to his ego, he should not get a tax benefit for it as well. Real charity is giving without expecting anything in return. People would still be charitable, it would just be on less of an industrial scale.

I’m not advocating eliminating any of these deductions or particular policies, but would insist than any increase in revenue be exclusively devoted to debt reduction. Beyond that, I would point out that any real reform also has to include state and local taxes, given how onerous, i.e. property taxes are for many people. I would suggest that we eliminate or drastically reduce taxes on all the necessities of life, such as food, clothing, shelter, and medical care. There could be limitations and caps to avoid rewarding ostentatiousness. Instead let everything beyond these elements be taxed, most of which is elective and not essential to life. Thus, for example, we ought to instead have an entertainment tax, (take that Hollywood) which would be relatively painless, given that it would be based upon optional expenditures. No one can seriously argue that entertainment is an essential expense at present. Furthermore, if society continued to prosper (and this should delight liberals) the list of nontaxables might even eventually be expanded to include some “social” goods, at least as long as it does not increase debt or raise taxes. It is far preferable that these things be provided and decided by individuals themselves rather than the government. That means individual choice instead of state direction. This is only a preliminary proposal, but accompanied by a rational tax system that treats everyone equally, we could reduce overall taxation, increase growth, and pay down the debt. After all, its only fair.

Nancy Pelosi and other liberals are mulling over imposing a VAT (Value Added Tax) on America to cover the unsustainable deficits they have run up as well as ambitious new social spending programs. This tax is common in Europe, where it ranges as high as 21%. It is in effect a national sales tax that is applied at each stage of production. The imposition of such a tax would provide the government with a new stream of revenue that would be invisible.

Given the proclivities of the current government you can expect things to cost a lot more in the future. Either they will impose a VAT, or otherwise will inflate the currency to devalue debt and screw the bondholders, causing everything to cost more. Anyone who remembers the nightmare of the late 70s inflation must already be concerned about this.

The Left essentially wants to emulate the European welfare states, and so would adapt their methods, beginning with health care. But when it comes to the VAT America is different. There are states and local governments that also tax, but they are conveniently usually left out of comparisons with other countries. We already pay state and local sales taxes as high as 10% in some localities. Will we now pay another federal sales tax? The VAT would result in an endless expansion of government if the Social Democrats have their way. This will come at the expense of the private economy, which will result in slower growth and fewer jobs.

Under this proposal you will find yourself with less money in your pocket while looking at higher prices for everyday expenses. On this Tax Day it is time to say enough! The only hope is that in November these scoundrels will be voted out and replaced by fiscailly prudent representatives.

For the first time in history public sector union membership exceeds private sector union membership. As private sector employment continues to decline public sector employment is increasing. This is a dismal indicator of where our economy is headed. The old industrial sector unions understood that a thriving private sector was necessary for their own prosperity. Even though aligned with the Democratic party the members tended to vote independently.

Today public employee unions like SEIU, AFSCME, and teacher unions are all prospering at public expense. They all have a vested interest in public spending and taxation, and exert a controlling interest on the Democratic party. The “stimulus,” rather than going for infrastructure, roads, and bridges, which would stimulate private employment, and provide jobs for the people who are actually unemployed, largely went to states and programs favored by these groups.

They now provide the funds and shock troops for liberal Democrats in elections and bogus counter-tea party rallies and have a clear interest in expanded government. This occurs not just at the federal level but in states and localities as well. For example, in suburbs teachers unions, apart from screwing up education and resisting reform, regularly dominate school budget votes that constantly increase taxes because few others bother to vote and opponents aren’t organized. California is going broke with absurdly high pension obligations. It is possible for a prison guard to retire at 50 and receive a pension equivalent to 90% of their last salary. New York is not far behind.

These unsustainable benefits were granted in part because of influence in state legislatures, and because public employment allegedly pays less than private employment. This is no longer true so we have the preposterous situation of people making less being taxed to maintain people making more than they are. Furthermore government priorities are warped from what would otherwise be in the public interest by this insidious influence.

Unless the grip of these unions is broken the cost of government will become increasingly onerous and its expansion will be unchecked. Thus one of the first priorities of true reformers must be to break these unions, for that is where much of the pressure on government expenditures is coming from.

New York City has got to be the only place that can get away with claiming your property value has increased, you can’t appeal and therefore your taxes must rise even while real estate is actually going down the toilet. Fat chance of getting a decrease when actual values register.

Meanwhile years ago at some point I put a wrought-iron fence around a tree in front of my house. Now the city is actually cutting cement, servicing tree wells, and providing free iron fences along the block. With such screwed up priorities no wonder the city is in the hole.

The huge expansion of government we are now seeing may have profound consequences for the future. The debt will have to be paid by taxpayers, who are a shrinking portion of the population. As direct money transfers, services, and jobs provided by the government expand, resources are drawn out of the private sector. We will reach a point where those receiving money and support from the government or working for the government will outnumber those who do not. Those dependent on the government will be able to vote themselves continuing benefits at the expense of others in the private sector. This means that a minority of the population will be supporting a majority, which will require higher taxes and make work in the private sector all the more futile. Then the number of productive citizens will decline further while the unproductive increase. This would be disastrous and ultimately lead to social chaos and collapse. The stimulus package puts us closer to that tipping point than ever. Many expenditure commitments will be difficult to undo in the future, so all we can do is our best to make sure that the “temporary” increase in government will in fact remain so, lest the tipping point be reached.